Sri Lanka and China ties post WWII

 
Wrote this as reply on a South Asian Blog re Sri Lankas China leanings questioned by Indian readers. Did not mention the obvious China has not trained and funded terrorists against Sri Lanka, unlike India.

Replying to Naveen and Sumits comments. 

Sumit: i don’t understand the level of simping for China in SL
Naveen: SL have done the China leaning game for a couple decades. So what changed now?

The big geopolitical change is China has gone from being the US cheap labor manufacturing source to a big time competitor.  Even the prime enemy as per Biden>  So the US is trying to stop Chinas influence wherever.  It was little too late when US (and India) realized China had cornered the very strategic Hambantota port.

We have been buddies with China for ages. Specially in 1970's during Srimavo Bandaranaike's time.  That time too we had a foreign currency shortage  It was a really bad time. I was about 12 and we had to stand in line for hours to get bread, rice/dhal/wheat flour on rations. Forced austerity, and we became self sufficient in about 5 years.  However, people wanted the imported freebies and gave a 2/3rd majority to the West leaning JR Jayawardene in 1977.  With that an open liberal economy.  Also the 1977 and 1983 pogroms, the burning of the Jaffna Library..  

China came to the rescue during those hard times with the rubber rice pact. Again bypassing dollar transaction. In comparison the US gave us moldy surplus wheat flour on credit. I and Sri Lankans had to eat that bread on ration.  It was moldy and with maggots, gullo  look up PL 480).

The first China Rice Rubber pact was in 1952 when the very West leaning Dudley Senanayake was the PM. SL (Ceylon then) had foreign exchange crisis in 1952 caused by a dramatic fall in her export prices brought about by the quick end of the Korean War boom. The end of the Korean War and the drastic reduction of commodity purchases by the West – in particular, of natural rubber by the United States.
China was unable to obtain rubber as a result of prohibition of rubber exports from Malaya following a UN resolution preventing the sale of rubber to China. The American Government invoked the Battle Act which prevented it from giving aid to countries selling strategic materials to Communist countries and cut off aid to Sri Lanka. In addition, US stopped selling sulphur needed by Sri Lanka’s rubber plantations. This was the price that had to be paid for trading with China.

R. G. Senanayake Minister of Commerce in 1952 said: "We noted on the Chinese side the absence of the spirit of bargaining and haggling on comparatively small points. On the other hand, they gave us the impression of being large minded and forthright in their dealings"

The trade was based on barter – exports and imports to balance every year; only the outstanding balance at the end-of-the-year was to be settled in foreign exchange.

Trade however was rarely balanced in the following years but the outstanding balance was generally carried forward to the next year without settlement in foreign exchange.

When Srimavo went to China in 1963 she was given a World Leaders welcome (see video link below).  I wonder if the Chinese even then were thinking the long game.

Sumit: could raise the funds no strings attached via market borrowings at the same cost why would it need China and it’s restrictive loans?
extract its pound of flesh via geopolitical gains,
China has never pressurized SL about debt repayments.. Neither are the loans restrictive. It is IMF, ADB loans (9.5 million, 27%) that are extremely restrictive. In 2017 West leaning Ranil wanted loans/handouts to fund consumption/imports for local political gain. He wanted to be President. The West US did not oblige. So he went to China. The only thing China wanted was the Hambantota lease.  That money (about a USD billion) was used in consumption, not to pay any Chinese Debt. 

We cant raise at same cost from market borrowings because of  Rating downgrades

Sumit: if I remember correctly, the Chinese debt closer to 20% because some got transferred to state owned
Chinese loans, bilateral, commercial whatever are around 10%.  See the erd.gov.lk link above.

yeah propaganda.  In one place I saw the statement "Chinese are 45% of Bilateral loans" True.  

However, (again see link for data source)
Total borrowings............34.8 million
Market borrowings .......14.7 million    i.e. 42%.
Bilateral borrowings..... 10.6 million    i.e. 30%
China borrowings........... 4.77 billion  (45% of Bilateral: i.e. (10.6 x 45% ): 
.......................................13.5% of Total Borrowings (4.77/34.8)

Indian Bullet train. I.e India has a 50-year loan at just 0.1% interest from Japan with a 15 year grace period.
The carrot. Most of the money goes back to Japan to purchase locomotive. And then parts, maintenance etc over 50 years.  Thats probably in the fine print.  Nobody,I repeat Nobody  gives handouts. there is always a catch or string

Sumit:SL approached China twice to restructure in 2015 and 2017
Never heard of that. Any link.  Maybe, you are thinking of the Port lease. That was not to restructure debt, it was to raise money because the West was not obliging.  Money was spent on consumption.

China Visit of Mrs. Sirimavo Bandaranaike (1963)

Link to comment thread
https://www.brownpundits.com/2023/01/27/open-thread-1-27-2022-brown-pundits/#comment-105269

What Changes Needed for the US

Start with a quote from Matt Stoller (2011)
Change needs to happen—and it will happen, either through good leadership or through collapse.
The US has choices, most other countries dont.

With all the chaos and rioting there are no specific goals to make the US equitable, specially for the lower rungs of society.  My thoughts of specific goals.

What should be done immediately
a) Give aid to direct individuals
   This includes free testing and health care

b) Debt Jubilee, i.e. forgiveness of debt. 
   Rent, Mortgage forgiveness based on income/job.
   NOT a deferral with a huge amount coming due in the future

Electoral Process
The President, Congress and Senators need to be more answerable to the public.  The way the current system works, public votes and President, Congress and elected officials do the bidding of their paymasters, the big money  Multinationals and Military Industrialist.  This change is imperative for a proper functioning democracy.

So
a) No lobbyists, period.  Caught lobbying or accepting lobby, at least a few years in Jail.
    Lobbying is legalized bribery and corruption.
b) Campaign Finance: I would prefer only a govt funding, equal to all contestants. 
    Or only donations by individuals with cap on amount.
c) Two term limit for Senators

Finance Specific*
a) Let Too Big to Fail companies/banks go bust if they are not profitable ,
    instead of propping them up with more and more trillion dollar handouts.
b) Stop derivatives being used for speculation/betting.
    Can be used as hedge against asset on the books. 
    If the asset is sold, the derivative needs to be unwound.
c) Share buybacks be made illegal.

I dont think USD 6 Trillion injection into financial markets will solve the Covid19 pandemic or the chaos in the US. 
To put the 6 Trillion into perspective.  US GDP is USD 19 Trillion.  Public debt is  USD 18 trillion Interest public debt USD 479 billion/0.5 Trillion (10% of Budget)

*Some suggestions by VijayVan

Manufacturing
Its not about cutting costs per se. Think the Henry Ford saying, workers should be able to buy what is produced. For that the US must first throw out Free Trade and embrace protectionist. Start Manufacturing and give Price protection to what is manufactured.   Same for Oil, the US is self sufficient. 
But all of this means ditching the Petro dollar, and the global monetary power that comes with it.  So very unlikely those changes will be by choice.

Society:
A push for polices that re vitalize small towns with self reliant economies.   Not just a suburban enclave dependent on commuters working in a nearby big city.  Coupled with small or medium manufacturing.  i.e. Supply chain is mainly within the US.

Maybe even a partial break up of Big Ag and land distribution (100 acres or so) specifically for Agriculture.  I think subsidies for small scale farmers is fine.  Much better that trillion dollar bail outs for Big Ags.

Wars
The US will have to make some serious decisions about being the global policeman, and conducting wars. (I doubt will happen without change in Campaign Finance/Electoral Process).  The US Might has turned to "might happen". Trillions on war, has not made the US safe.  Never ending Wars and nary a benefit except debt and death.
This does not mean disbanding the military.  Any country needs to defend itself against invasions.  The choice is wars of aggression in distant lands or developing the economy.
US Spending on wars Iraq War: +1 Trillion Afghan War: 1 Trillion  Military: 500 billion/year

US Unemployment Low or High

I keep getting this question of low unemployment numbers of US reported in the media, whereas I say there is high unemployment in the US.

So first the point form answer.

a) What the media reports is U3 from the Bureau of Labor and Statistics (BLS). U3 are those unemployed and participating in the labor force, i.e looking for a job.

b) There is also a measure called U6, which is supposed to measure all unemployed.

c) Both U3 and U6 have issues because both use a model, birth death (of companies) to get all the U numbers.
.

Birth Death Model of Jobs
The biggest problem in the reported U statistics is the Birth Death model. By some estimates, 93% of the "jobs created" and "40% of jobs" (2016) are from the birth death model.  To quote "On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship."
 The birth death model originated in the biological sciences (Copula Models). The model is also used in pricing Credit Default Swaps (CDS).  (I used to code this stuff)

The basic idea being,
 i) get a estimate of how many companies at a particular credit rating (eg AAA) lose their credit rating within time frames (trees)
ii) Use the above info for probabilities of a company (or basket) to loose their Credit Rating. Then price the CDS.

As you can see just the estimates can be problematic. Slight tweak and you get the numbers you want.


 So the caveat, when you read that the economy added more jobs, note that it was from a model (not a two legged one), a math model.

Iceland does not want foreign investors

A law passed on May 22 by Iceland's parliament is offering the foreign holders of about $2.3 billion worth of krona-denominated bonds a choice of either selling out in June at a below-market exchange rate, or have the money they receive upon maturity be impounded indefinitely in low interest bank accounts. In other words, Iceland is trying to kick out foreign investors.

For now, investors aren't interested in the deal and wish to stay invested in Iceland, even as officials are clearly trying to push foreign investors out. What does that say about the world when some investors believe there is lower counterparty risk dealing with a government (Iceland) hostile to foreign investors than their own governments (US, UK) at home?

Iceland has rebounded since the financial crisis. The Icelandic Krona has stabilized against the Euro, the rate of change in inflation has slowed, and the country has recorded year-over-year growth in GDP each year since 2011.

http://www.zerohedge.com/news/2016-05-28/iceland-has-offered-foreign-bondholders-choice-sell-now-or-have-cash-impounded-indef
http://www.wsj.com/articles/iceland-puts-freeze-on-foreign-investors-1464366399

Capitalism, Labor and the proposed Indo Lanka ECTA

Excerpts from a comment by Kieth on Income Inequality

Feudalism – exploit the masses through land ownership
Capitalism – exploit the masses through wealth (Capital)

Today this is done through the parasitic, rentier trickle up of Capitalism:

a) Those with excess capital invest it and collect interest and rent.
b) Those with insufficient capital borrow money and pay interest and rent.

All this was much easier to see in Capitalism's earlier days.

Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living.

This was the way it had always been and always would be, the benefits of the system only accrue to those at the top.

It was very obvious to Adam Smith:

The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.

I think Sri Lanka, being rural and an agricultural economy (and specially after Land Reform) has been spared much of the extraction of labor by the capitalist class. Under the British the Sinhalese refused to work on the Plantations because they were self sufficient with their own land and crops.

The proposed Indo Lanka ECTA is the new version of Brits import of Indentured workers for the Plantations. We will end up with cheap Labor.

The most appropriate comparison (from recent history) to ECTA would be the effect of North American Free Trade Agreement (NAFTA) on US employment and industry. Both employment and industry went south Figuratively and literally. Good for big business bad for the people of the US.

The North American Free Trade Agreement (NAFTA). was signed in 1994, 17 years later, 682,900 U.S. jobs have been “lost or displaced” because of the agreement and the resulting trade deficit. In 1993, before the signing of NAFTA, the U.S. held a $1.6 billion trade surplus over Mexico. By 1997, the tides had turned, and Mexico laid claim to a much larger surplus of $16.6 billion. As of 2010, it’s not even close. Mexico’s trade surplus now hovers around $97.2 billion

The take home is that the poorer country gains. In the case of ECTA, India is by far the poorer based on GDP/capita. Also population wise this is not an agreement between equals. The whole of Sri Lanka is smaller than an Indian city. If the US is getting Mexicanized what would happen to little Sri Lanka.

Obviously Indian labor is cheaper. What is not that well known is they have shortages of water and will attempt to take over water resources.  One method may be privatization of water and another by establishing water hungry industry on the cheap. See how establishment of an Indian fruit juice company Dabur has severely depleted water resources to the detriment of locals.  

Back to NAFTA. One may well ask why the US agreed to NAFTA, who gained. Big Business Multi nationals. They moved their manufacturing to Mexico and gained by cheap labor and taxes. It was really a transfer of wealth from the average Joe to the rich in the US. Rentier extraction of Labor.

Powdered Quartz for Semi Conductor Chips: Value Addition for Pennies

This is graphite sorting. Breaking Quartz into chips is more labor intensive
From Power Point presentation on Economic Geology.

Quartz is mined in Sri Lanka and exported mainly for the use in the micro chip/silicon wafers in the semi conductor industry.  There is very little value addition even though some of the mining companies are BOI.  Basically the women workers break the stone into little pieces and then it is crushed into powder and exported.

Powdered Quartz is Rs. 3,600 (~US $ 32) a ton whereas one kilo gram of the purified product is worth nearly US $ 50,000 according to an article in the Asian Tribune. This same article reports on a proposal for a semi-conductor plant to be built by Toyota. Wonder what happened to that project.

In terms of value addition and providing jobs its worse than tea/rubber estate workers. How can this be an BOI investment when Sri Lanka is getting pennies in value addition.

When will Sri Lanka create such value added products such as lenses (camera, watch etc), Crystalline carvings, micro chip/silicon wafers for the semi conductor industry.

So what is Quartz:
Quartz  it is SiO2 or sand in a special crystal structure. Quartz is the second most abundant mineral in the world. However, naturally occurring quartz crystals of extremely high purity needed for growing silicon wafers in the semiconductor industry is rare. In Sri Lanka there are formations where 99.9% pure quartz is available.  These quartz and and other gem formations are associated with metamorphic rocks and are thought to have happened 1,000-3,000 million years ago during the creation of Rondina the “mother” of all subsequent continents.

When quartz has impurities in its crystal structure then colored gems such as citrine, rose quartz, Amethyst and Topaz are formed. See this article for more info on color centers (natural or artificial) that will make quartz a valuable gemstone.

Sri Lanka has very good value addition for quartz and related stones as gems. Read this article (and many more) from the Gemological Institute of America  for a good overview of the gem industry in Sri Lanka.

Prostitutes: 3 million College going Women in US

Inequality of income, with predominantly low wage jobs for those who are lucky to have a job and

Vegas_Blondie 32 • Las Vegas, Nevada, United States

high rents and exorbitant college fees are forcing women to augment their income by finding a sugar daddy to pay the bill.

Enter SeekingArrangement.com   a website catering to men and women who exchange sex for compensation, like an allowance or paying bills like student loans and rent.  It has 4.5M registered users

• 3.3M Sugar Babies
• 1.2M Sponsors (aka Sugar Daddies & Mommies)
• Average age of Sugar Baby: 21
• Average age of Sugar Daddy/Mommy: 45
• Average Income of Sugar Daddy/Mommy: $500K
• Average compensation: $5K per month

The Economic Relevance of SA - It's where the 1% converges with the 99%.

Earning $500K or more and spending $60K per year on a mistress: this is the 1%.  Needing help with college loans and rent: this is the other 99%.

It's not an online dating website.  If someone wants a relationship or a liaison, there are plenty of other sites like Craigslist and Ashley Madison.

Is it a prostitution website?  According to SA they are not, repeat not, engaged in prostitution.  Their disclaimer: "An arrangement is not an escort service.  SeekingArrangement in no way, shape or form supports escorts or prostitutes using our website for personal gain." 

Seeking Arrangement: A Form of Prostitution, for the 1%.  As a prostitution website, it may not be as explicit as WhatsYourPrice or Backpage, but SA has at its core a business transaction: companionship with extras in return for cash and/or the equivalent.

Mainstreaming Prostitution: Beginning last year, the Bank of England included prostitution in GDP measurements.  According to the Office of National Statistics, prostitution generated $9B a year, adding 0.7% to the UK GDP.  They aren't alone: Sweden, Norway and a few other European countries already include it.  And if you can measure it, you can tax it.  And legalization is necessary for measurement.
Prostitution is legal in most of the developed world.  In fact, of the G20 countries, prostitution is illegal in just 5: China, South Korea, Saudi Arabia, South Africa, and, of course, the United States.

From http://www.zerohedge.com/news/2015-08-24/less-10-years-federal-reserve-has-driven-millions-american-women-prostitution

Economic Indicators: 2000 to 2015

Data presented without comment. You can click on chart for source interactive data.

              GDP         Change
       (Billion USD)
2000      16.3         
2005      24.4           8.1
2014      74.9         50.5

Change in GDP 2000-2005=49%
Change in GDP 2005-2014=200%

Note:
Comparison of GDP per Capita for India
Comparison of Debt to GDP for the US.
The US GDP also includes intangibles such as films, music, iTunes to GDP, increasing GDP by 3%.
Also see US Debt: $18 Trillion; U.S. Debt/GDP ratio over 300%

 

Links: Chinese, US economic clout

Just the links

How China Covered The World (31 Countries) In "Liquidity Swap Lines

Essentially, China has used bilateral swap agreements to help embed the yuan in international trade in the the post-crisis era. As you'll see below, counterparty countries have also tapped their yuan liquidity lines when they're cut off from dollar funding, making China a critical lifeline for bolstering FX reserves and helping to alleviate shortages of imported goods.

US Refuses To Cede Control Over IMF In Snub To China

The Obama administration signaled it won’t jeopardize the U.S. power to veto IMF decisions to achieve its goal of giving China and other emerging markets more clout at the lender

Currency Swap: Exchange of two currency with or without interest payments. In case of Argentina the is USD . Argentina has a USD 11 billion equivalent Peso/Yuan swap.  Sri Lanka has a USD 1.63 billion equivalent Swap

Arjunan Mahendran and Central Bank Bond Scam Loss Costs LKR 42.5 Billion

The whole Arjuna Mahendran Central Bank Fiasco ( also called the Bond Scam of Sri Lanka) explained very simply.

At end some explanation of the Greek Bond "losses" that Harsha de Silva was talking about.

Also note that Harsha de Silva on Central Bank Losses "UNP through the documentation Deputy Minister Harsha de Silva has received, prove its case that its man Arjuna Mahendran is not to blame.” (Link here)

Bottom line one is a minimum of LKR 12.5 billion lost to the country.
Bottom Line two, no law has been broken. The beauty of high finance white collar crime.

Update: Apparently the losses are on  many bond and T-Bill issues (see note below).   The estimate is a whopping LKR 42.5 billion loss by T-Bills and T-Bonds over 5 weeks.   This post looked at just one deal.

The Numbers:

1. 1 billion was needed to roll over expiring bonds.
2. Expected Interest Rate was 9.5%
3. Instead 10 billion was accepted at Interest Rate of 11.75% for 30 years.
4. Expected Interest Rate in 5 years 6.75%
   (As of 2015/4/26 Bond Yields Thai 2.5% and Vietnam 6.37% and Greek 12.7% )

In a country where economy is growing or is stable, it is expected that interest rates for borrowing will keep dropping. Specially in a world where negative interest rates are in play.

Any one with basic financial knowledge then does not borrow on long term. You issue short term bonds say for 5 years and then roll over. i.e Do a new issue of Bonds/Treasuries at a lower interest rate.

So what are the problems.

• LKR 10 billion Bonds/Treasuries issued when only LKR 1 billion needed.
• High Rate of Interest (11.75% when it could have been 6.75% (or less) in 5 years 
  Note, Thai (2.5%) and Vietnam (6.37) Bond yields are far lower as of 2015/4/26.
• 30 year issue, when a 5 year issue should have been made.
• We are paying close to Greek Bond yields of 12.7% , which Harsha de Silva called Greek Junk Bonds.

That means Sri Lanka will be over paying LKR 12.5 billion over the next 25 years.  (10 billion * 5% * 25 = 12.5)   

Greek Bond Losses

I wish Harsha De Silva would explain the above numbers of the Bond Issue and compare them his quote on LKR 2 billion (USD 15 billion) loss on purchase of Greek Bonds.

Basically the Central Bank bought Greek Bonds, probably because they are paying high interest rates.  Its basically a hedge, risky though. i.e. Use some of the money that we have borrowed and invest in higher interest paying bonds. The CB gets to keep the difference.

Because there are issues of whether the EU will bailout Greece, the Effective Interest Rate (Yield) has Increased on Greek Sovereign Debt (Treasuries/Bonds).  i.e the Value of the Bonds has decreased.

Unless the Greek Bonds/Treasuries are sold or used as collateral it is just a book value loss. 
That is until if and when the Greek Govt defaults on its interest payments.   Only one other country has done that so far, Argentina but does not mean Greece would not do it too. 

So as yet we have not had tangible loss on the Greek Bonds.

Note: If book Value of Bonds/Treasuries was a big deal, then Goldman Sachs, JP Morgan etc would be bankrupt.  Thats because their Tier 3 capital, mainly Mortgage Backed Securities (MBS) and Asset  Backed Securities (ABS) are probably worth less than 50 cents on the Dollar.  However after 2008 Financial Collapse have relaxed accounting rules/requirements (FASB and Basel) and allowed Tier 3 capital to be valued at Par, i.e. original purchase price.

Note:  Treasurys are less than one year, sold at discount. The interest is effectively the difference between the full value you get at at end and the discount price. Notes are 2-10 year maturity issues. Bonds are over 10 years.  Both Notes and Bonds pay interest semi annually.

Asian Infrastructure Development Bank: U.K. Germany, France and Italy Join Bank

The Asian Infrastructure Development Bank was created by China as an alternative to the World
Bank. 

While Sri Lanka has been busy distancing themselves from China, Europe including U.K. Germany, France and Italy join the Bank.

This is a must read, with Sri Lanka mentioned.  The interviewer is Sharmini Peries of Real News Network

Excerpts from Michael Hudson: Europe Tilts East Towards China

From the very beginning, the World Bank has been basically an extension of the U.S. Defense Department, from the first president, John J. McCloy, who is assistant secretary of defense, down through Robert McNamara, 1968 to ’81,

So you have the purpose of the World Bank lending essentially for plantation export crops, for export crops to make countries avoid producing anything that might compete with American exports, above all grain, although every single mission of the World Bank, country mission, has recommended that countries undertake land reform and agricultural extension to help promote family farming and countries to feed themselves. The World Bank has not made loans for this.

The World Bank, under U.S. congressional pressure, has said, look, we’re not going to finance countries becoming independent of the United States; our function is to make them export more to the United States and to buy from the United States. So the funding of the World Bank has mainly been to fund infrastructure developments, vastly overpriced, to Third World countries to create money for American engineering firms; also to lend out dollars and to indebt countries to it; and worst of all, to promote privatization.

The World Bank is pressured everywhere for privatization of public utilities, of basic infrastructure, and then it will make loans to the governments to develop this infrastructure or the roads and the external economies, and then sell them cheap to American buyers, who essentially will create monopolies and turn infrastructure into a rent extraction to squeeze out interest, dividends, management fees that are all going to be paid to the Americans. And this has been raising the price of basic utilities–communications, transportation, water, and other things throughout the Third World. And this has made these economies uncompetitive with the United States that has a mixed economy where the government subsidizes infrastructure.

The good standards that Kerry talked about is Orwellian rhetoric for the standards that are thoroughly corrupt, thoroughly insider dealing. They’re the standards that led the IMF to make the military loan to Ukraine last week.

In Ukraine, for instance, it said, try not to pay the debt that you owe to Russia. It’s gone to Sri Lanka and said, let’s back a right-wing dictatorship or a right-wing group that doesn’t pay China. So China has had great trouble collecting on the vast infrastructure investment that it’s made and is supposed to be paid for by these countries.

whereas under the United States, when countries can’t pay to dollars, then the IMF comes in and imposes austerity. There’s no indication that China’s going to come in and impose the same kind of crippling austerity that the World Bank and the IMF have been imposing on countries.

Excerpts from Diplomatic disaster: Obama humiliated by allies’ rush to join China’s new bank

The reason for the stampede is clear: China’s market and its huge hoard of cash to invest override any concerns voiced by the U.S. Treasury Department and State Department over Beijing’s half-ownership stake in the bank. “Simply put, if you partake, you have a stake,” Thomas Koenig, a policy analyst with the European Union Chamber of Commerce, told the German broadcast service Deutsche Welle.

“New players are challenging U.S. leadership in the multilateral system,” Mr. Lew said, pleading for passage of the IMF reform package. “Our international credibility and influence are being threatened.”

But private analysts say that credibility and influence have taken major hits from the rush to join the Asian Infrastructure Investment Bank.

Also read:

China’s $50 Billion Asia Bank Snubs Japan, India

 

Generational Debt: That Debt From 1720? Britain’s Payment Is Coming

Article on how bailout debts taken out by Governments can last many centuries. To me another take home message was that these debts become small change with time because of inflation.
==============================================

LONDON — Share prices went through the roof, speculation ran wild and money poured into ill-fated ventures before the boom turned, inevitably and catastrophically, to bust.

After that financial crash in 1720, called the South Sea Bubble, the British government was forced to undertake a bailout that eventually left several million pounds of debt on its books. Almost three centuries later, Britons are still paying interest on a small part of that obligation.

Now, prompted by record low interest rates, the British government is planning to pay off some of the debts it racked up over hundreds of years, dating as far back as the South Sea Bubble.

George Osborne, the chancellor of the Exchequer, said this month that in 2015 Britain would repay part of the country’s debt from World War I, and that he wanted to pay off other bonds for debt incurred in the 18th and 19th centuries.

That includes borrowing that may have been used to compensate slave owners when slavery was abolished, to relieve the famine in 19th-century Ireland and to bail out the infamous South Sea Company, which caused the bubble in 1720.

Economically, the move is no different from a homeowner’s decision to refinance a mortgage at a lower rate. In an era when the government can borrow at 1.5 percent or less, paying out to holders of historic debt anything from 2.5 to 4 percent per year, as it is now, makes little sense.

But the maneuver is also a reminder of how debts incurred by governments are passed down through generations.

In many cases, the underlying debt has already been refinanced, sometimes multiple times, since being incurred. The bonds paying interest on the debt have been bought and sold and passed down through generations, still paying interest indefinitely, until the government decides to pay them off. So old are some of the bonds that closing the books on them may require an act of Parliament in some cases.

Gary Shea, head of the school of economics and finance at the University of St. Andrews, said historic debt is “real,” even if the vast majority of public borrowing is fairly recent. “The taxpayer is still financing the interest payments on it,” he said.

One of the bonds Mr. Osborne plans to pay back next year is a 3.5 percent war loan issued in 1932 in exchange for earlier bonds. It still has more than 120,000 holders, including 38,000 who own bonds with a face value of less than £100, or about $155. In March, those who still own the bonds will get the original stake back at a cost to the government of £1.9 billion.

Also set for repayment are “4 percent consols,” or securities, issued in 1927 by Winston Churchill, then chancellor of the Exchequer, partly to refinance National War Bonds originating from World War I. Now worth £218 million, they will be repaid in February.

Reissuing bonds was a big administrative endeavor in earlier eras. In 1932, the conversion of an earlier war loan to one paying lower interest required so many temporary clerks that 700 lambs were prepared to feed them one evening, according to a history of Britain’s debt by Jeremy Wormell. Now, in the computer age, the task is relatively straightforward, officials say.

Within a total debt of around £1.4 trillion, the historic liability accounts for a small portion — about £2.5 billion, or less than two-tenths of 1 percent of the total outstanding.

But over the centuries, Britain’s borrowing has at times been huge and has come in different forms, sometimes including loans from other governments.

It was not until 2006, for example, that Britain fully repaid its lend-lease debts to the United States from World War II.

Some international loans from the aftermath of World War I were never fully paid and were effectively put aside in 1934, though Britain also failed to recoup debts it was owed by other nations.

The recent eurozone debt crisis is creating a similar legacy in countries that took bailout loans. Ireland is not scheduled to make its final repayment to international creditors until 2042. Greece is scheduled to do the same in 2054.

Britain’s current stock of open-ended historical debts does not include international loans but is made up of a variety of bonds known as gilts, a name that comes from the original British government certificates that had gilded edges.

Of course, much of the original debt has been eroded by inflation. According to research for the British Parliament, prices rose by around 118 times from 1750 to 1998.

The debt originating in part from the South Sea Bubble, the oldest still on the books, was consolidated into bonds issued in 1853, and those who now own them receive an annual payout of 2.5 percent.

According to the Bank of England, that original debt of around £4 million was probably incurred around 1722, though other sources suggested it might date from a few years later.

Experts say that some of the government bonds issued in the years after 1720 were created to replace earlier ones that had paid higher interest — a principle that Mr. Osborne is following three centuries later.

“We are now in a period,” said Mr. Shea of the University of St. Andrews, “in which interest rates are even lower than they were in the 18th century.”

From http://www.nytimes.com/2014/12/28/world/that-debt-from-1720-britains-payment-is-coming.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news

Prostitution and Illegal Drugs give UK GDP a boost.

Britain becomes a bigger economy than France with the inclusion of Prostitution and Illegal drugs for GDP calculation. Official estimates show prostitution added about £5.7bn to the UK economy in 2013, while illegal drugs were worth about £6.62bn.

• Britain spends more on illegal drugs than it does on Beer or Spirits (liquor)
• Britain spends more on illegal drugs and Prostitution than on Vegetables, Milk, or footwear

Also read how increased health care costs allowed US GDP to become 5%
http://www.unz.com/proberts/magic-growth-numbers/

http://www.zerohedge.com/news/2014-12-27/hookers-blow-lift-britain-over-france-worlds-5th-largest-economy

How Russia outmanoeuvred the west in Ukrainian finance

I think this should be essential reading for the gurus who negotiate or issue bonds for the SL govt directly or indirectly.  e.g. The Petroleum Corp, oil price hedge fiasco.

How Russia outmanoeuvred the west in Ukrainian finance by John Dizard

“F*** the EU!”
Victoria Nuland, US assistant secretary of state, commenting on Ukrainian  policy on her mobile phone, as recorded and publicly distributed by the Russian special services in February 2014.

“Treason is a matter of dates.” Attributed to Prince Charles Maurice de Talleyrand-Perigord, drawing up European borders at the Congress of Vienna, 1815

The quality of US representation in eastern Europe seems to have declined, sadly, since the days of George Kennan and George Marshall in the 1940s and 1950s. European diplomacy, though, appears to have maintained the tradition of ethical flexibility that Prince Talleyrand embodied.

Whatever your opinion of the morality of Russia’s intervention in Ukraine, or whether the Putin government’s larger strategy will have more gains than losses for the Russian state, there is no doubt the Russians have tactically outmanoeuvred the US and Europe in the financial markets. I am told the Pentagon is already studying Russia’s financial market moves in Ukraine to see how similar tactics might be used in future military crises.

The new Ukrainian government ministers, being chosen and sworn in since the new parliament first met on Thursday, have to deal with a collapsing currency, a corrupt energy pricing scheme that has helped bankrupt the state, and large imminent hard-currency payments to enterprises owned by the very state violating its borders with tanks and “volunteer” troops.

This is all pretty visible. Yet interestingly, the prices in an actively traded market in Ukraine’s internationally held foreign currency bonds do not reflect these realities. An issue due in September 2015 was priced at around 85 cents last week, for a yield of 28 per cent; another bond due in July 2017 could be bought for 80 cents, for a yield to maturity of 19 per cent. 

All of these bonds are “foreign law” issues, which means the terms cannot be altered unilaterally by the Ukrainian government using its own parliament and legal system. Until the end of next year, their interest and principal payments are, effectively, shielded by English law, Scandinavian arbitration boards and the Russian and Russian-backed forces at, and over, Ukraine’s borders.

Russian institutions have been quick learners in understanding the uses of international law bonds. The terms under which it sold gas to previous Ukrainian governments reek of corruption, but also good technical lawyering, the effectiveness of which was only slowly understood by people who should have known better, such as the US administration.

Take, for example, what the Americans now call “the booby-trap bond”, a $3bn bond issued by Ukraine to Russian holders a year ago, which is due in December 2015. It is not only enforceable under English law, but was registered on an Irish exchange. It has cross default clauses that are triggered if Ukraine misses a payment to any other entity controlled or majority owned by Russia. That includes a $1.6bn payment to Gazprom due at the end of this month. Oh, and Russia can call a default (which triggers a further default on the rest of Ukraine’s roughly $16bn bonded foreign debt) if the country’s debt to GDP ratio rises above 60 per cent – due, perhaps, to extortive Russian gas prices and a Russian-backed invasion and insurgency.

Thanks to a deep devaluation of the Ukrainian hryvnia, as well as the greater impoverishment of the population, Ukraine’s current goods and services account is probably close to balancing. However, its debt service burden is beyond the capacity of its foreign exchange reserves and forex earning capacity over the visible future. 

So the western countries can either grit their teeth and put up much of the money needed to pay off Ukraine’s maturing debts to Russia, whatever the fairness of the contracts behind them, or watch the economy collapse completely. If such a disaster happens, the US, Europe, the IMF and the other multilaterals will have to compete with Russia to offer humanitarian aid packages, which could be even more expensive.

For the next year, official western and multilateral agency funds will support payments on Ukrainian obligations such as that $500m, 6.875 per cent bond. At 85 it is arguably underpriced, since it comes due before the maturity of the Russian “booby trap bond” in December. However, by the time we get to 2017 or 2019, there could be a crushing burden of official and multilateral debt outstanding, which will claim seniority over privately held foreign bonds. At that point, a drastic outright “haircut” or “reprofiling” of maturities into eternity looks a good bet.

The only way for Ukraine to rebuild enough economic strength and earned foreign exchange to avoid the consequent legal and economic mess is to voluntarily impose effective anti-corruption measures and market-based pricing for energy and other goods that end the oligarch model of development. In turn, these reforms would need to evoke not just reductions in wasteful and corrupt use on the demand side, but new production on the supply side.

To anyone who has past experience with Ukrainian officials, this would appear to require intervention from, say, an archangel with a flaming sword. In this miserable winter, though, there may be enough popular sentiment against past practices to get the job started.

From the bondholders’ point of view, that is probably the only path to their being paid on schedule after the end of next year.

http://www.ft.com/intl/cms/s/0/c141d720-770c-11e4-944f-00144feabdc0.html#axzz3Kl0HDmUT

Another Economic Crash: Reserve Bank of India Governor Raghuram Rajan

Reserve Bank of India Governor Raghuram Rajan says another economic crash is probably in the

books.  Dont dismiss him as just the RB India Governor.  Raghuram Rajan is also a Professor of Finance at University of Chicago and one time chief Economist at IMF.

I personally keep track of Raghuram Rajan and Satyajit Das, both great names in the Finance world but also critical of current Financial Instruments.   Raghuram Rajan had paper out in 2005 "Has Financial Development Made the World Riskier? which I came across in a Salon article in 2006 (see below). 

Based on Raghuram Rajan's article and what I knew working in (Fixed Income) Bonds and Derivatives (till 2009) had a  discussion with a Grad school Colleague also in Derivatives (he worked for a Hedge fund) in 2006. I kept on betting against the trend and made some money with PUT options in late 2007 collapse. I used only money I could afford to loose, so made a little money, 1:10 returns or more.)

Date: Fri, Apr 28, 2006 at 5:29 PM
Subject: Re: Credit Derivatives: Wall Street bets on a housing bubble

http://www.salon.com/tech/htww/2006/04/18/credit_swaps/index.html

Wall Street bets on a housing bubble

I think could be optimistic if things are given time to play out. Maybe the time is to equilibrium is a little faster now, than in the past simply because of the "global village" thing.

However, the pessimist in me wonders if two  or three of the pivots of instability give way at the same time.

e.g. In no particular order (Italics: Current additions to explain to non-technical)

1. ARM's ((Adustable Rate Mortgages) start to collapse (default)

The Lehman defaults kicked in defaults, then mortgages (MBS) and Credit Derivatives defaulted. If the US govt had not stepped in and backstopped the Banks, complete collapse. Anyway that was the end of Investments Bank. The thinking at that time a couple would fail; instead all failed.

2. Iran requires payment in Euros
3. China starts pull out of the Treasury Market
4. Some nut creates a virus that just freezes the net for a few weeks (that would give a run on the banks.)

To me whats scary is that the whole world is so tied together that

instead of it becoming stabler, its created more points of instability not

just for the US but for the world.

I guess the converse also holds in that as everyone is tied together

that there is a vested interest to keep things as stable as possible.

Anyway, the underlying issues of the 2007-2008 Financial Collapse have not gone away. The huge debt loads, by Govts (e.g US: $12.6 Trillion 104% of GDP see post on GDP calculations) and personal debt (US $99,000 103% of Disposable Income) have not decreased.  This can only happen by write off (debt forgiveness) and restarting the clock.  It cannot be decreased by earnings  taxes or austerity, the debts are too large. (see US cant tax its way out of deficits).

Note: Actual liabilities of the US Govt, when Social Security, Medicare, and federal employees' future retirement benefits are included is $86.8 trillion, or 550% of GDP.

The debt in turn is the basis of many Financial Instrument, from simple Bonds to complex Mortgage Backed Securities and CDO's.   These Instruments in turn are the basis of the Asset side Investments of many balance sheets. So when defaults occur it cascades into loss of value in instruments which in turn trigger balance sheet funding requirements.

Triggers can also be political/social turmoil.  Think Ukraine. Ebola or Iraq.

So something has to give, its not a question of IF but WHEN.   If you knew when, you would be a $ millionaire with a small investment against the trend. 

Prostitution and Illegal drug sales to be used for GDP in Italy.

Out here in Sri Lanka we think our powers that be are cooking the books to paint a rosy picture of the Economy.  However, we still have a long way to go to catch up with the shenanigans that the West uses to cook the books.

Just a year ago the US added intangibles such as films, books, magazines and iTunes songs to its GDP calculation. That added USD 500 billion (3%) to the US GDP.  This brought down the debt/GDP to just less than 100%.

Then the UK followed by adding to GDP, Research and Development, building of arms, including aircraft carriers.  That increased the GDP by 2.5 - 5%.  Future pension benefits were added as current income and that increased savings rate from 5% to 10%.

Update (30th May 2014) the UK too added prostitution and illegal drugs to the GDP calculation.

Illegal drugs and prostitution boosted the economy by £9.7bn – equal to 0.7% of gross domestic product – in 2009, according to the ONS's first official estimate.

A breakdown of the data shows sex work generated £5.3bn for the economy that year, with another £4.4bn lift from a combination of cannabis, heroin, powder cocaine, crack cocaine, ecstasy and amphetamines.

Netherlands includes its drug trade of about EUR 2.5 billion in its GDP.

Italy just outdid them all by including Drugs, prostitution and smuggling as a part of GDP calculations.

Sri Lanka should follow suit by adding kassipu (moonshine), kudu (drugs) and Prostitution to its GDP.


http://www.zerohedge.com/news/2013-04-21/us-gdp-will-be-revised-higher-500-billion-following-addition-intangibles-economy

Data shake-up turns UK into nation of savers

http://www.zerohedge.com/news/2014-05-22/hookers-and-blow-how-changing-definition-gdp-officially-jumped-shark

Businesses Refuse Spend a Few Cents More Per Garment to End Labor Exploitation in Emerging Markets

Fantastic article by Satyajit Das on how businesses refuse to spend a few cents more per garment to

end labor exploitation. 

The first excerpt is the last sentence in the article and is a quote from George Orwell the author of Animal Farm.

“… we all live by robbing Asiatic coolies, and those of us who are ‘enlightened’ all maintain that those coolies ought to set free; but our standard of living and hence our ‘enlightenment’ demands that robbery shall continue." 

Excerpts:

There is a race to the bottom in costs and working conditions, as emerging market manufacturers compete for the business of foreign purchasers. Everyone in the supply chain seeks to maximise market share and profitability, sometimes by cutting corners. In emerging markets, corruption and failures of government and business compound these pressures.

Bangladesh must compete with Vietnam, Cambodia, Laos and Myanmar for foreign clients. Continuous cost pressures and competition make this economic model difficult to sustain. Prices have decreased by 10-12% over the last 5 years. Return on investment in the garment trade has decreased from 50% to 20%, which is close to the cost of debt in Bangladesh, effectively around 15-20%. In turn, this drives further cost reduction measures.

e.g. If you take a shirt that is sold at US$ 22.50 (appox LKR 3,000) to US consumers, 75% (LKR 2,200) of that price is profit for the retailer. If the shirt is made in Sri Lanka the labour cost is only 2.8% (LKR 81) of the price. Up to the CIF value it is only 23.1% (LKR 675) of the retail price,

None of this is new in emerging markets. Its origins lie in the colonial past.

Using superior military power and technology, European powers, such as England, Spain, Portugal, Netherlands, Italy, France and Germany, established and maintained colonies in Asia, Africa, and the Americas. The basic driver was cheap resources, labour (often in the form of slavery) and new markets for the colonizing nation’s products.

Colonialism fuelled the growth and prosperity of the old world. Portuguese explorer Vasco da Gama was exultant at being able to buy pepper in the East Indies for 3 ducats a hundredweight from indigenous traders knowing they would fetch for 80 ducats in Venice.

Karl Marx approved: “the question is not whether the English had a right to conquer India, but whether we are to prefer India conquered by the Turk, by the Persian, by the Russian, to India conquered by the Briton”. Whilst recognising that the exploitation of Indian markets and labour by the East India Company for commercial gain, Marx argued that capitalism would transform the subcontinent. India would benefit from the fruits of industrial revolution, such as improved communications and a free press. It was a sentiment worthy of George Macdonald Fraser’s Flashman who regarded the Victorian empire as “the greatest thing that ever happened to an undeserving world”.

Peter Whitfield writing in Travel: A Literary History identified the link between earthly power (wealth) and spiritual glory (Christianity) that provided the justification for colonial conquest:

It amounted to a theory of cultural destiny – that the European maritime nations were destined to bring Christianity and civilization to a pagan and savage world, and their reward was to be the wealth and riches which the indigenous populations themselves were incapable of appreciating and valuing. Underlying colonialism was what Edward Said in 1978 termed: Orientalism. This was a reference to the patronizing attitude of Westerners towards Asian, Middle Eastern and African societies. They were seen as static and under developed, which a superior West could shape in accordance with its own image.

via:
http://www.nakedcapitalism.com/2014/04/satyajit-das-new-colonialism-businesses-refuse-spend-cents-per-garment-end-labor-exploitation-emerging-markets.html

UK Morals: No sanctions because of Russian Money in London.

Many here in Sri Lanka happen to think that the West is more moral and less corrupt than Sri Lanka.  Yes, they appear to be moralistic with us poor folk in Asia and Africa. Thats because the money involved is peanuts and we are/were dependent on handouts.  No different from the upper class in Sri Lanka who used to screw the female help and throw them out when they became pregnant.  I am sure everyone knows of such family secrets. On the other hand the same upper class would deplore the "loose morals" of the poor.

Now we find that Germany and the UK are not willing to sanction Russia on its invasion into Crimea, because it will hurt their monetary interests.

Excerpts

one country that has the most to lose from Russian sanctions, Germany, and specifically its industrial superlobby has already said "Nein" to any truly crippling trade blockade of Moscow would backfire on Germany's own economy and bottom line.

The White House has imposed visa restrictions on some Russian officials, and President Obama has issued an executive order enabling further sanctions. But Britain has already undermined any unified action by putting profit first.

It boils down to this: Britain is ready to betray the United States to protect the City of London’s hold on dirty Russian money. And forget about Ukraine.

Britain, open for business, no longer has a “mission.” Any moralizing remnant of the British Empire is gone; it has turned back to the pirate England of Sir Walter Raleigh. Britain’s ruling class has decayed to the point where its first priority is protecting its cut of Russian money — even as Russian armored personnel carriers rumble around the streets of Sevastopol. But the establishment understands that, in the 21st century, what matters are banks, not tanks.

The Russians also understand this. They know that London is a center of Russian corruption, that their loot plunges into Britain’s empire of tax havens — from Gibraltar to Jersey, from the Cayman Islands to the British Virgin Islands — on which the sun never sets.

British residency is up for sale. “Investor visas” can be purchased, starting at £1 million ($1.6 million). London lawyers in the Commercial Court now get 60 percent of their work from Russian and Eastern European clients. More than 50 Russia-based companies swell the trade at London’s Stock Exchange. The planning regulations have been scrapped, and along the Thames, up go spires of steel and glass for the hedge-funding class.

Britain’s bright young things now become consultants, art dealers, private banker and hedge funders. Or, to put it another way, the oligarchs’ valets.

Russia’s president, Vladimir V. Putin, gets it: you pay them, you own them. Mr. Putin was absolutely certain that Britain’s managers — shuttling through the revolving door between cabinet posts and financial boards — would never give up their fees and commissions from the oligarchs’ billions. He was right.

The Shard encapsulates the new hierarchy of the city. On the top floors, “ultra high net worth individuals” entertain escorts in luxury apartments. By day, on floors below, investment bankers trade incomprehensible derivatives.

Come nightfall, the elevators are full of African cleaners, paid next to nothing and treated as nonexistent. The acres of glass windows are scrubbed by Polish laborers, who sleep four to a room in bedsit slums. And near the Shard are the immigrants from Lithuania and Romania, who broke their backs on construction sites, but are now destitute and whiling away their hours along the banks of the Thames.

The Shard is London, a symbol of a city where oligarchs are celebrated and migrants are exploited but that pretends to be a multicultural utopia. Here, in their capital city, the English are no longer calling the shots. They are hirelings.
The Shard encapsulates the new hierarchy of the city. On the top floors, “ultra high net worth individuals” entertain escorts in luxury apartments. By day, on floors below, investment bankers trade incomprehensible derivatives.

Come nightfall, the elevators are full of African cleaners, paid next to nothing and treated as nonexistent. The acres of glass windows are scrubbed by Polish laborers, who sleep four to a room in bedsit slums. And near the Shard are the immigrants from Lithuania and Romania, who broke their backs on construction sites, but are now destitute and whiling away their hours along the banks of the Thames.

The Shard is London, a symbol of a city where oligarchs are celebrated and migrants are exploited but that pretends to be a multicultural utopia. Here, in their capital city, the English are no longer calling the shots. They are hirelings.

From:
http://www.zerohedge.com/news/2014-03-09/why-london-too-will-balk-sanctions-against-russia-and-putin-knows-it

http://www.nytimes.com/2014/03/08/opinion/londons-laundry-business.html?_r=2 

Also Read
http://www.nakedcapitalism.com/2014/03/yanis-varoufakis-ukraine-three-awkward-questions-western-liberals-comment-eus-role.html 

Addendum

A comment: Well, I do not believe that a few thugs will produce a grassroots uprising but that there is a real dissatisfaction in the population towards the corruption of the government. It represents a worldwide trend that questions increasingly the decision makers who are not really responsible (immunity) but ensure a comfortable lifestyle for themselves while the rest of the people are increasingly struggling. We see corruption left and right and the increasing concentration of power has to reverse so that decisions are again made on the lowest possible level of the hierarchy.

Contrary to the commenter,  I think the last 50 years or so of history was an aberration, where the poulace had a say in the politics of their country.   The oligarchs and industrialists initially did not know how to respond and keep control of the general populace.   Now oligarchs and industrialist Worldwide have figured out mechanisms to grab control into their hands.  Using laws and loopholes in laws which they "sell" to the general population as in for their own good power is consolidated in a few as in most of history.

Penis Length and GDP Growth

This was a research done by Tatu Westling of University of Helsinki in 2011.

To quote

This study has made three contributions.

First, it reveals the somewhat perplexing link between the size of male organ and economic growth.

Second, it provides some rudimentary interpretations which state that macroeconomic growth might be related to populations' risk-taking and/or self-esteem.

Third, for the best of author's knowledge the interplay between sex and macroeconomic outcomes is novel, and has not been discussed in the literature before.

Obviously the proposed `male organ hypothesis' should be tested with more elaborate methods and data. Until then it remains an intriguing statistical artefact.

Sri Lanka, like India and the Philippines had low growth and short penises. Yikes.

Some Interesting Comments

Glad someone took the time to look at the hard data.

Perhaps the engine of economic development is less about bore or stroke and more about total displacement.

https://helda.helsinki.fi/bitstream/handle/10138/27239/maleorga.pdf

Mandela: South Africal Low Life Expectancy and Parakrama Bahu I

Mandela has died and he was a great leader.  However, even great leaders cant solve all problems in a country. Case in point was the devastation on life expectancy in South Africa caused by the AIDS epidemic.  Mandelas response and had very little effect on Life Expectancy. In effect Life expectancy was no different from neighboring Zimbabwe under Robert Mugabe who most would agree was not a great leader.

When you look at GDP//capita another story appears. During Mandelas Presidency, 1994-1999   GDP/capita stagnated between USD 3,546 and USD 3,102.  However since 2002 GDP has risen from USD 2,439 to USD 7,942 in 2011.  I am no economist to say whether this GDP/capita 200% rise over 9 years was due to inflation or because of economic policies put into place during Mandela Presidency.

If we take Sri Lankas history Parakramabahu the Great was a great leader who united the country oversaw the expansion and beautification of his capital, constructed extensive irrigation systems, reorganized the country's army, reformed Buddhist practices, encouraged the arts and undertook military campaigns in southern India and in Myanmar. The adage "not even a little water that comes from the rain must flow into the ocean without being made useful to man" is one of his most famous utterances.

However such success came at a price. Relentless warfare took its toll on the country and Parākramabāhu's reliance on Tamil mercenaries proved to be a destabilizing force after his death. Taxation was high under his reign and high-value coinage all but disappeared towards the end of his rule, a sign of increasing poverty. One of his successor Nissanka Malla's (a non Sri Lankan from Kalinga) most popular actions was reducing taxation.

The chronic instability of the years after his reign undid many of his accomplishments and developed into a crisis that the country never recovered from.

His ultimate weakness was the lack of restraint in his spending, taking Sri Lanka to greater heights that it had reached in a long time, but exhausting the island's resources in the process.

To me the take home message is that however great a countries leadership can be, the leadership can only solve some of the problems facing a country.

Read this for a negative view of Mandelas legacy
http://takimag.com/article/mandela_what_the_obits_omit_jim_goad#axzz2myfFOaIf